TracFone Straight Talk Plans Changed Their Company!

And
then came TracFone Straight Talk!
So
what's so interesting about the Straight Talk plans that were
added to
the TracFone prepaid cellular portfolio? These plans
consist of monthly plans with buckets of minutes, data, and text
messages, including unlimited.
At the time of launch, TracFone's Straight Talk
plans were a complete divergence from their classic low cost
pay-as-you-go plans. I expect that in this case starting a
new
brand specifically for these plans was an easy (and wise!) decision.

These
plans continue to be extremely competitive, and you'll see people
advertising the
unlimited plan focusing on the fact that it's on Verizon's network.
Why? Well, when it first launched, the TracFone
Straight Talk brand was new
and
didn't have any brand equity (i.e. people didn't really associate it
with
anything...yet), and TracFone is known for its super cheap value plans.
On the other hand, "$45 unlimited, no contract plan on the
Verizon network" speak volumes!

Why did they do a trial?
The initial launch was only a limited trial and had many people
frustrated. Why a trial
instead of a full market launch is
an
easy question to answer. TracFone
needed to see whether the
business model would be sustainable. In
other words, could they make money from it! Although we'd all
like to see
super cheap unlimited plans, the reality is that carriers have real
costs to deliver services, and a lot of the variables and unknown
expenses
comes down to
how many minutes people actually end up using on a monthly basis.

There's
typically a period, often referred to as the "honeymoon period," when
people first get an unlimited plan. They use the heck out of
the
phone because everything is included. This usage can stay
this
way for
several weeks or longer. Then people tend to settle in on
their
normal calling habits. Although they'll likely settle in on
more
minutes than they used to use before they got an unlimited plan, it
tends not to be nearly as high as their usage during the honeymoon
period.

Risky Business!
The challenge is knowing what that
average will
ultimately be, because it drives the net cost to the carrier.
Simply, they're getting a fixed amount of money (ex. $45 for
TracFone Straight
Talk) from you each month. As you use more minutes, their
profit
declines. The more you stack on the minutes, the more the
carrier's profit declines. Eventually it becomes
unprofitable.
And don't think that just because a company is large, or has
been
around awhile, that they can't go bankrupt. The crashing U.S.
economy of 2008-2009 was a good reminder of this fact!

There's
also almost always a small percentage of people (let's call it 1-5%)
who use so many minutes, WAY above what the average person uses, that
they can actually ruin the cost structure (i.e. overall average) for
the entire business or product. That's why you'll see a lot
of
"reasonable usage" clauses in a most unlimited plans, whether for
voice or mobile broadband. This allows carriers to disconnect
customers who are abusers. Although a lot of people complain
about this type of hidden language/clause, the reality is that 95-99%
of customers will never be impacted by it, but it does help to allow
carriers to continue offering good value to virtually every other
customer. If
they
couldn't get rid of these abusers, they'd either have to increase the
price for everyone, or shut down their business altogether.

Conclusion
So, TracFone Straight Talk was a trial because TracFone needed to
figure
out how many
minutes their customers would end up using. Once
they
determined that, they had a better
understanding as to whether their pricing would be sustainable (i.e.
profitable) to allow them to continue rolling out the program.
And even then there's still risk, because as you roll out to
new
markets, you get different types of customers, who in turn can change
these average numbers.

Note that In October
2009, it was
announced that Straight Talk would be rolled out to all Walmart stores.
In other words, the trial was officially over, and
they've been thriving ever since!